How to Get a Debt Consolidation Loan If You Have Bad Credit

debt consolidation loans for bad credit

You have a mound of debt and you’re not sure how to repay it. You’ve considered taking out a personal loan to consolidate the debt, but it’s hard to find debt consolidation loans for bad credit.

If you’ve had issues repaying your debts, you might have damaged your credit score. The very reason you need a consolidation loan might also be why you can’t get one.

Here’s a look at resources that can help you if you need a debt consolidation loan for bad credit.

Debt consolidation loans and credit scores

Borrowers can use a debt consolidation loan to pay off debts and replace them with a single loan. The new loan is a chance to lower monthly payments or find a cheaper interest rate.

But qualifying for a new loan with bad credit is tricky. Loan applicants will need a credit score in the mid-600s or higher for easy approval and low rates.

With a credit score below that, it will take some work to find loans for which you qualify. Expect to accept some tradeoffs, such as limited options in lenders and loan types, and higher interest rates or loan fees.

7 ways to get debt consolidation loans for bad credit

A bad credit score will make it trickier to qualify for a loan, but it’s still possible to get debt consolidation loans for bad credit. Try the following to get the debt consolidation loan you need — even with poor credit.

1. Student loan consolidation options

If the debt you’re trying to consolidate is student loans, you’re in luck.

Student loans are much harder to get rid of than other debts and aren’t dischargeable in bankruptcy. For lenders, this makes student loans a less risky form of debt. For borrowers, this can mean lower and more flexible credit requirements to qualify for student loan refinancing.

Lenders such as Earnest, for instance, have no minimum credit requirements for student loan refinancing. They will look at your credit score, but they also consider your application based on criteria such as your education and employment history.

If you’re struggling with student debts, you’ll want to consider other options as well. Federal student loan consolidation could help, as well as income-driven repayment plans.

2. Try lenders with low credit score minimums

If you have a low credit score, don’t automatically assume you can’t get a loan. Lenders have different credit requirements and many are willing to consider lending to those with bad credit.

With some searching, you can find a debt consolidation loan for bad credit.

Avant, for example, offers unsecured personal loans for borrowers with credit scores as low as 580. Similarly, Upstart considers borrowers with credit scores as low as 620. Make sure you read lender reviews and choose a reputable lender. Also, keep in mind that a lower credit score might result in higher interest rates.

3. Get a cosigner

Many lenders won’t offer debt consolidations loans for people with bad credit, but they might approve your loan application if you have a co-applicant with good credit.

To get a cosigner on a debt consolidation loan for bad credit, you’ll need two things: a willing cosigner and a lender who allows co-applicants. Lenders such as Citizens Bank and Earnest allow cosigners for their personal loans.

See if a partner or family member who has good credit is willing to cosign the loan and you’ll have a better chance of approval on debt consolidation loans for bad credit.

4. Check with a credit union

Credit unions are not-for-profit financial institutions that focus on serving a community. Credit unions often offer less-conventional products, including debt consolidation loans for people with bad credit. Members often get some of the lowest rates when borrowing from a credit union.

Check with local or national credit unions to see what options they offer for your credit score. A credit union might have personal loans designed specifically for borrowers with poor credit.

A credit union’s loan officers also often have more say in the underwriting process, so you can make your case to a human instead of getting an immediate rejection from a computer algorithm.

5. Nonprofit debt consolidation

In addition to credit unions, there are some nonprofit organizations dedicated to helping people manage and get out of debt. These nonprofit debt counseling agencies often offer free credit counseling and debt assistance.

Find a nonprofit debt counseling organization in your community or that offers services nationally. You should verify its not-for-profit, 501(c)(3) status.

Once you’re connected with these services, many of them will have a credit counseling session to explore your debts and repayment options. They might be able to connect you with lenders that offer debt consolidation loans for bad credit.

Some also offer in-house debt consolidation through a debt management program. The nonprofit organization can even negotiate with lenders on your behalf to lower rates or cancel a portion of your balances. However, you will likely face an additional service fee to set this up, as well as ongoing maintenance fees.

6. Secured loan

If you have some assets, you might consider borrowing against them with a secured loan to consolidate your debts. With a secured loan, your asset — such as a car or home equity — is collateral that the lender uses to guarantee the loan.

A secured loan has the obvious drawback of putting your property at risk. If you default, your lender can seize your property to settle the debt. But it also lowers the lender’s risk, so it’s much easier to get approved for a debt consolidation loan with bad credit.

It’s worth considering other options first, such as liquidating your asset and repaying debts with cash. But if the collateral is something you want to keep, a secured loan can help you keep ownership while borrowing the funds you need to consolidate debts.

7. Work on your credit and try again later

Last but not least, you can always spend some time repairing your credit and try again in a few months. If you can raise your credit score even 30 or 50 points, you can improve your chances of getting approved for a debt consolidation loan.

If your credit score is right on the verge of average (600 to 650), it can be worthwhile to focus on rebuilding credit.

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